Renewable Energy in Africa.

Trending rapidly towards cost-competitiveness with fossil fuels

linklaters.com/renewablesinafrica
A surprising aspect of the analysis is the
rate at which the cost of renewables is
approaching parity with fossil fuels. This means
that economic development and environmental
objectives do not necessarily conflict; they
actually work together.
Melanie Shanker, Managing Associate, London

This report features research and insights by Linklaters LLP, with research and analysis
by the Overseas Development Institute (ODI).
 Linklaters 3

Executive summary

>> Renewable energy technologies are trending towards cost-

competitiveness with fossil fuels and there is evidence to support
cost parity in certain asset classes. Economic development and the
deployment of renewable technology in Africa are now synergistic
because of this movement towards parity. >5x
>> As renewable energy becomes more affordable there are signs that in
some markets in sub-Saharan Africa, renewable energy technologies
may leapfrog fossil fuels and Africas economic development could
actually be driven by renewables.

>> As the cost of delivering low-carbon development decreases, it Between now and 2030,
Africas renewable energy
should become easier for negotiators at COP 211 to reach consensus
capacity is forecast to grow
(regardless of whether the outcome of the negotiations is a legally at least five-fold
binding agreement) on financial support for developing countries
transition to low-carbon economies, as well as commitments by
developing countries to such low-carbon development.

>> This trend also means that the G77s2 historical concerns expressed at
climate negotiations that restrictions imposed by an international climate
deal on the use of, or access to finance for fossil fuels, could impede the
speed of African development, should be mitigated.
290m
>> An ambitious outcome in Paris which provides long-term price only 290 million out of
signals can help create a virtuous cycle of unlocking investment 915 million people in
sub-Saharan Africa have
in renewables3. Consequently, the outcome of COP 21 offers an
access to electricity
opportunity to achieve economic development in Africa more rapidly
than might otherwise have occurred, rather than a risk to development
through restrictions on the rapid deployment of fossil fuel technology.

>> Despite the forecast of the decreasing costs of renewables, there are still
numerous risks and barriers to investment in renewables in Africa which
still need to be overcome, largely through domestic de-risking policies,
to fully enable investment. Multilateral and regional banks and the Green
Climate Fund will continue to play an important role in this respect. 45%
Energy use in sub-Saharan
Africa has risen 45%
since 2000
1
21st Conference of the Parties to the UN Framework Convention on Climate Change.

2
The G77 is a negotiating bloc of developing countries which includes African states on most matters atclimate negotiations.

3
International Energy Agency (IEA) Renewable Energy Medium-Term Market Report, 2015.
4 Renewable Energy in Africa. Trending rapidly towards cost-competitiveness with fossil fuels

Comparing the costs of renewables

tofossil fuels in Africa

The levelised costs of power4 Costs for renewables are forecast to a substantial decline between 2014
continue to fall significantly, driven by and 2025 in the cost of solar PV and
(LCOE) for renewable energy increasing technological maturity, better Concentrated Solar Power (CSP), and
technologies are trending towards access to finance, economies of scale onshore and offshore wind over the next
andincreasing projectexperience. 10 years. Solar has already decreased
cost-competitiveness with fossil dramatically, with solar PV module costs
Figure 1 shows that, at least at the lower
fuels, and there is evidence end of the range, onshore wind, solar
falling 75% from 2009-2014 and the
cost of electricity from utility-scale solar
to support parity in certain photovoltaic (PV), biomass, hydropower
PV falling 50% from 2010-20145. The
and geothermal are all cost-competitive
assetclasses. with fossil fuels, based on todays costs
striking increase in cost-competitiveness
of solar technology should encourage
and taking into account any future
significant uptake of this opportunity in
cost decreases. Figure 1 also projects
itsvarious forms.

Figure
Figure 1. Global
G Levelised Costs
 lobal Levelised Costs of
ofEnergy
Energy(LCOE)
(LCOE)Ranges
Rangesby
byRenewable
RenewablePower
PowerGeneration
Generation Technology,
Technology, 2014
2014 andand 2025
20256

0.40

0.35

0.30

0.25
2014 $US/kWh

0.20

Range of todays fossil fuel electricity costs

0.15

0.10

0.05

0.00
er
re

re

id

e)

e)

e)

al
in
tio
CF

-A

EC
gr

w
ho

ho

ag

ag

ag

m
fir

po
ca

er
or

or

or

B/

-O
s

fs

PV

-
s
on

co
ifi

ro
as
of

h
st

st

st

BF

ot
as
ar

no

yd
om
d

Ge
as
l

(n

(6

-G
in

in

er

H
So

s
1

Bi
W

om
ok

as
C

s
(6
PT

PT

om
st

as

Bi
s-
C

om
P

Bi
PT

as
CS

CS

Bi
om
P
CS

Bi

Wind Solar Biomass Hydro Geothermal

2014 2014 2014 2014 2014

2025 2025 2025 2025 2025

4
 evelised cost of power or (LCOE) is a unit to represent
L associated with renewables, or system-wide cost savings from
the per-kilowatt hour cost of building and operating a plant
over its assumed life cycle and at an assumed utilisation
rate. It includes: capital costs, fuel costs, operations and
maintenance (O&M) costs (fixed and variable) and financing
costs. The IEA data and the International Renewables
Agency (IRENA) data used for this analysis do not include
government incentives or subsidies, system balancing costs
5
IRENA 2015 Renewable Power Generation Costs in 2014.
merit order (i.e. prioritising one source over another for power
6
IRENA 2015 Renewable Power Generation Costs in 2014.
dispatch). The analysis of LCOE also does not take into account
indirect subsidies to fossil fuels, such as those that government
support that reduces exploration and production costs and
thus fuel costs, or other such support.
 Linklaters 5

Africa has the potential to leapfrog a whole generation of technologies that

have served the West and Asia very well, but perhaps dont need to be deployed
to the same extent in Africa. Coal clearly has a role to play in Africa, but
there is scope to do a whole lot more with renewables as infrastructure is
created in this next period.
John Pickett, Partner, London

Figure 2. Levelised Cost of Energy (LCOE) for Renewables and Fossil Fuels (2014 US$/kWh)
Figure 2. Levelised Cost of Energy (LCOE) for Renewables and Fossil Fuels (2014 US$/kWh)7

Biomass

Geothermal

Hydro

17%
Wind power contracted
Solar PV

CSP

through South Africas Wind offshore

Renewable Energy
Independent Power Producer Wind onshore
Procurement was purchased
at prices 17% lower than Fossil fuel
those projected for the
countrys two new coal-fired 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40
power plants
Global range Africa

7
Interpreted by Overseas Development Institute (ODI) from IRENA Renewable Power Generation Costs in 2014. Africa-specific data
were not available for geothermal, Offshore Wind and CSP. Although projects such as the two coal-fired IPPs Jorf (700MW) and
Safi (1230 MW) have been financed in the last three years, relatively few projects involving other asset classes are being built and
there is relatively poor data availability to break down the LCOE for fossil fuel generation across different asset classes in Africa
inmore detail.

As project-to-project LCOE variability is those projected for the countrys two

high, individual project economics may
already make renewables the most cost-
competitive option. With the average cost
of non-hydropower renewables declining
rapidly in the past few years, and
continuing to decline, even for average
LCOE values, renewables are cost-
competitive relative to fossil fuels.
While the costs in Figure 1 reflect global
LCOEs, similar trends have been noted
in Africa, assisted by the abundance of
renewable energy sources. The LCOE of
some renewables technologies in Africa
is already cost-competitive with fossil
fuels, as shown in Figure 2, and African
costs are generally lower than the global
average for each renewable technology.
For example, wind power contracted
through South Africas Renewable
Energy Independent Power Producer
Procurement (REIPPP) was purchased
by the utility at prices 17% lower than
new coal-fired power plants, Medupi and
Kiseli. Committed investment through
REIPPP including to develop power
from wind, large-scale solar PV, and
biogas has totalled over US$10 billion
(more than a quarter of which has come
from international investors). The REIPPP
programme has also enabled the entry
of grid-connected renewable energy at
highly competitive prices.
To benefit from the trend towards
cost parity, as more renewables come
online, the use of fossil fuels will need
to be adapted to meet changing grid
requirements. Investment in transmission
and distribution will also be a large part of
the required investment to meet growing
power demands regardless of the mix
of renewables as discussed further in
Comment: African Renewable Power
Market Size. Continued on p8
6 Renewable Energy in Africa. Trending rapidly towards cost-competitiveness with fossil fuels
There is no longer a choice between a slow,
expensive renewables pathway versus a quicker,
cheaper fossil fuels pathway. There will be
amixof both.
Chris Staples, Partner, London
Renewables will make up a significant proportion ofnewgeneration capacity in Africa
There is very significant and growing demand
for capacity across most African markets, and
IRENA and IEA projections for the growth of
generation capacity in Africa show that the
more that capacity is required and built, the
more this will come from renewables. Energy
use in sub-Saharan Africa has risen 45% since
20008. In sub-Saharan Africa as a whole, only
290 million out of 915 million people have
access to electricity and the total number
without access continues to increase, with
population growth outrunning electrification9.
Under business-as-usual scenarios, over 600
million Africans will still not have access to
electricity by 2030.
It is important to note that a larger proportion
of the growing demand for electricity is
likely to come from existing consumers
expanding demand and industry, rather than
rural electrification and bringing electricity
to the poorest part of African populations,
who are likely to struggle with initial financial
barriers to connection and whose ongoing
demand will be less than existing customers.
Some countries such as Morocco and South
Africa (see Case Studies on South Africa
and Morocco for more detail) have shown
that faster rates of electrification are possible
where expertise is developed and ambitious
policiesimplemented.
Capacity Growth and Demand
Renewable energy is currently expected to
meet two thirds of the growth in demand
for power in sub-Saharan Africa by 202010.
Between now and 2030, Africas renewable
energy capacity is forecast to grow at least
five-fold to 128GW of new capacity, based
8
IEA Africa Energy Outlook 2015 The Current Policies
Scenario assumes business-as-usual, with no changes
in policies from the mid-point of the year. The New
Policies Scenario of the World Energy Outlook broadly
serves as the IEA baseline scenario. It takes broad policy
commitments and plans that have been announced by
countries into account, including national pledges to reduce
greenhouse-gas emissions and plans to phase out fossil-
energy subsidies, even if the measures to implement these
commitments have yet to be identified orannounced.
9
IEA Africa Energy Outlook 2015.
10
IEA Renewable Energy Medium-Term Market Report,2015.
on IEAs current policy scenario11. Applying
more aggressive assumptions about pricing
and policy objectives yields a high renewables
scenario, in which the forecast for renewable
energy capacity triples to a market size of
377 GW of new capacity by 203012. Fossil
fuel generation (plus nuclear) is projected
to represent approximately 250-300GW of
installed capacity by 2030, compared to
165GW in 2012 under both the current policy
scenario and high renewables scenario.
Under both scenarios, fossil fuels capacity in
Africa remains relatively unaffected regardless
of which policy scenario is adopted13. The total
energy supplied by fossil fuels is also similar,
but the capacity factor (which is the ratio of a
facilitys actual output over a period of time to
its potential output if it were possible for it to
operate at full nameplate capacity continuously
over the same period of time) of fossil fuel plants
decreases in ahigh renewables scenario.
Most electricity generation, transmission and
distribution are still owned and operated by
state-owned utilities in Africa (IEA, 2014).
Nonetheless, a number of countries including
South Africa, Nigeria, Kenya, Uganda, and
Ghana have recently unbundled generation
from transmission and distribution, opening the
door for independent power providers (IPPs).
Most IPPs operate through power purchase
agreements in which utilities negotiate an
electricity price with power producers or,
in some cases, power producers bid an
electricity price. However, with international
support, Uganda implemented a global
energy transfer feed-in tariff (GET FiT) in
2013, allowing international institutions to
11
IEA Energy Outlook 2014.
12
IEA Energy Outlook 2014.
13
ODI analysis of IEA and IRENA scenarios.
Hydropower and natural gas
are currently responsible for
most electricity generation
in the region
supplement the electricity prices offered to
small-scale independent power producers
that sell renewable electricity to the national
grid. The GET FiT creates an attractive
investment environment as it effectively offers
aguaranteed market for IPPs using solar,
hydro, biomass and bagasse, and producing
1-20 MW (GET FiT Uganda, 2014).
Utilities entering into power purchase
agreements (PPAs) with renewables
suppliers already need to factor the
intermittency of renewables in, to balance the
grid. As more renewables enter the grid, the
use of fossil fuels will need to be more flexible
and the grid will need to be adapted. This
has implications for fossil fuel operators who
typically model their returns based on an 80%
capacity factor; that may no longer be possible
as more renewables enter the grid. Energy
storage options are not sufficiently advanced to
be an outright alternative to fossil fuel backup
at this time. However, they will become more
relevant to utilities determining how to meet
electricity demand in the future.
Despite rapid growth in renewables capacity,
hydropower and natural gas are currently
responsible for most electricity generation in the
region and are projected to continue to make
up the majority of production in the future.
Most of the increase in gas-powered electricity
will occur in west Africa and, to a lesser extent,
in southern Africa, while moderate increases
in hydropower will occur throughout the sub-
continent. Coal-fired power is also projected to
grow significantly in southern African nations
and emerge as a source of power in both west
and east Africa. n
 Linklaters 7

To meet its ambitious renewable energy

target of 42% by 2020, Morocco has
profoundly reformed its legal and
institutionalframework.
Paul Lignieres, Partner, Paris Morocco benefits from
irradiation levels that are
30% higher than some of the
sunniest sites in Europe

Case Study: Morocco

Morocco offers an attractive investment Morocco also benefits from irradiation
environment for renewables, particularly levels that are 30% higher than some
large-scale solar PV and concentrated of the sunniest sites in Europe (>2300
solar power (CSP). The Moroccan Energy kWh/m2/y). Following the creation of
Strategy (the MES) for 2020-2030 the Moroccan Agency for Solar Energy
aims to increase Moroccos installed (MASEN)17, which provides feasibility
renewables capacity to 42% by2020, assessment, project design, development
with solar, wind and hydro each and financing of solar projects in
contributing 14%. Morocco, along with contributing to
expertise and research in the solar
Under the MES, Morocco set a target
industry for projects, specific targets
of 2GW by 2020 for wind power14. In
were set to implement the Moroccan
order to reach this target, the Moroccan
SolarPlan.
Integrated Programme of Wind Energy
mandated the development of wind farms Pursuant to such targets, Morocco is
in five new sites in Morocco (Tarfaya, about to cut the tape on the worlds
Akhfenir, Bab El Oued-Laayoune, largest concentrated solar power (CSP)
Haouma and Jbel Khalladi). Even with plant; the Ouarzazate plant18, the first
the remarkable growth rate experienced phase (Noor 1) of which should result
in South Africa during 2014, Morocco in a reduction of 240,000 tonnes of
stillhad the largest installed wind capacity CO2 equivalent emissions per year. The
in Africa which, at the end of that year, plant will be operational imminently
stoodat 787 installations. and will ultimately supply electricity to
1.1million Moroccans by 2018. Phase
Tarfaya15, the wind farm development
two19 is divided into two separate projects:
withthe highest energy-generating
a CSP tower project (Noor 2) and a
capacity (at 300MW), commenced
CSP parabolic trough project (Noor 3),
commercial operations on 8 December
with respective anticipated capacities
2014. The power generated from this
of100MW and 200MW. n
installation is expected to offset 900,000
tonnes of CO2 emissions per year. The
installation is an example of the growth in
Morocco of Independent Power Producer
(IPP) projects which foster private
sector participation in energy production
projects. Such growth has in part resulted
from changes to the legal framework
for the generation, transportation and
distribution of electricity16.

14
IRENA Africa 2030 Renewable Energy Map 2015. 17
 his is the state-owned agency in charge of solar IPP
T
projects which acts as a vehicle for risk allocation,
15
On which Linklaters advised the sponsors.
mobilising resources, feasibility assessments, project design,
16
Dahir no. 1-63-226 dated 5 August 1963 (as amended). development and financing of solar projects.

18
On which Linklaters advised MASEN

19
 he contract for which was won by a consortium involving
T
SENER and ACWA International Power (announced in
early2015).
8 Renewable Energy in Africa. Trending rapidly towards cost-competitiveness with fossil fuels

Barriers to entry: de-risking and

incentivising investment

Although the costs of renewables Historically, financing costs and hurdle todocumentation (so that bidders
rates have been higher in Africa than in know when they examine a particular
and fossil fuels are approaching developed countries due to perceived project exactly what it is going to look
parity, the renewable energy and actual political, regulatory, financial like because they have seen it before),
and administrative barriers and risks. and a process of pre-diligencing sites
market in Africa is relatively new To attract private investment, de- and projects and making this diligence
and many of the risks associated risking policies are required both at an available to bidders to reduce their
institutional level (for example, support transaction costs. This allows investors to
with investment are still considered for policy design, institutional capacity- take part in power procurement processes
to be barriers to investment for building, skills development for local without putting a significant amount of
operations and maintenance and their own capitalatrisk.
some, particularly new investors. resource assessments) but also at the
Some of the risks associated with
finance level to incentivise investors to
energy investment in Africa and the
justify taking on the perceived or actual
potential policies to mitigate them
risk20. See the Case Studies on Morocco
aresetoutinTable 1.
The fundamentals of and South Africa for moredetail.
investing in renewables In the short to medium term, while the
International Financial Institutions
costs of renewables are approaching a
are the same as they (IFIs) will play a key role in supporting
level which will provide an acceptable
are for investment more the rapid deployment of renewables in
level of remuneration for investors,
Africa. Inaddition to providing financial
generally in Africa. assistance, they can assist with the
government policies that decrease
the cost of developing renewables still
Involvement of the World institutional capacity and credibility
play an important role to encourage
Bank or other IFIs can building required to attract international
investment. These policies may include
investment. There have already been
be key to enhancing some promising examples of such
financial guarantees, transparent tariff
governments credit cost structures, market reform to enable
assistance such as the International
independent power providers (IPPs)
or to putting in place Finance Corporation (IFC)s Scaling
to enter the market, integration of
security to ensure that Solar programme21 which seeks to
regional power pools, implementation
transform the way these projects take
payment obligations to place through a package of donor funding
and improvement of transmission
investors are met. anddistribution infrastructure,
(to help countries develop projects
andsupport fordecentralised power
to a sufficient level to get investors
Andrew Jones, Partner, London centres. Continued on p12
interested), a standardised approach

Key investment risks such as political risk,

behavioural risks such as corruption, and social
expectations of the project should be actively
managed from the outset to optimise access
tofinance.
Vanessa Havard-Williams, Partner, London

20
 NDP Derisking Renewable Energy Investment: A
U
Framework to Support Policymakers in Selecting Public
Instruments to Promote Renewable Energy Investment in
Developing Countries (2013).

21
Linklaters advises IFC on its Scaling Solar programme.

Table 1. Risks and mitigation
Risk
1 Political Risk
> rule of law;
> expropriation;
> war/civil
disturbance;
> convertibility/
remittability risk;
>p
 olitical Force
Majeure (FM) (war,
including civil war);
and
> c ompliance with
contracts.
2 Support regimes
3 Change of law risk
4 Corruption
5 Counterparty risk
6 Currency risk
7 Local content and
skills capacity
8 Technology,
transmission and
distribution
22
Policy Risk in Renewable Energy Investments in Developing Countries dated July 2014 by Cambridge Economic Policy Associates Ltd, for the UK Department of Energy and Climate Chance (DECC).
Nature of issue
Political risk remains a significant issue for
emerging markets projects of all kinds, though
there is a high degree of variability depending on
the country. It can be intertwined with concerns
over performance of state-owned counterparties,
the court system and the relative support for
renewables projects relative to fossil fuel power.
That said, recent research for the UKs DECC22
suggests that the principal concern relates to
payment delays under PPAs rather than real or
stealth expropriation or total non-performance.
Change in policy reducing the economic
viability of the renewables project (e.g. by
lossofsubsidy).
Change of law adversely affecting the viability
ofthe project
Avoiding corruption risk remains a challenging
issue for project companies and their investors,
particularly given the extra-territorial reach of US
and UK anti-bribery legislation and regulators. It
is critical to ensure that PPAs and concessions
are obtained in a fair, transparent way.
Perhaps the biggest focus is whether the
counterparty (typically a state-owned utility) can
meet the contract payment obligations under any
PPA/investment agreement.
Exposure to volatile local currencies may not
provide for sufficient long-term certainty for
equity investors or lenders.
Most projects must satisfy local content
requirements. This can pose material challenges
to project delivery and reliability given frequent
problems associated with access to enough
skilled workers. Similarly, a lack of skills in
government and among regulators can impose
constraints on the development and operation
ofprojects.
No prior use/regime for use of the technology or
inadequate supporting transmission systems (or
other infrastructure) can be a major risk.
Linklaters 9
Mitigation
Political risk is best managed through a range of
measuresincluding:
> careful choice of partners;
> good diligence, structuring and contingency planning;
> a strong and fair PPA/investment agreement;
> clear government commitments;
> political risk insurance such as MIGA;
> access to BIT and use of offshore arbitration; and
> involvement of multilateral and development finance
institutionsand export credit agencies.
This can be less of a risk in African projects than in Europe,
because (i) depending on the fossil fuel alternative, the cost
may be at or close to parity (e.g. diesel relative to small scale
renewables generation; and (ii) for larger scale projects,
payment (including any incentives) is typically provided under
the PPA rather than by regulation. Where incentive regimes
exist at law, some export credit agencies (ECAs) and IFIs will
offer policy risk insurance (e.g. Overseas Private Investment
Corporation(OPIC)).
As for political risk above. In addition, clear stabilisation regimes
may be appropriate on a case by case basis.
Ensure robust ABC due diligence and know your client work is
undertaken early, and that politically exposed persons (PEPs) are
identified. Projects should have robust and effective compliance
systems to manage this, particularly with regard to government
officials and PEPs.
Counterparty credit risk can be managed through a range of
measures including:
> credit enhancement from Government and/or under schemes
such as World Bank credit enhancement;
> derisking through leverage including multilateral and
development finance institutions and export credit agencies;
> political risk insurance; and
> contractual terms (such as set off or payment terms).
Given limited market capacity for affordable long-term FX hedging,
it is still the norm in many countries for project revenues to be in
hard currency.
Often the solution is to train local workers but this may require
focus by the developer not just on the adequacy of its own training
but also that of its contractors. Skills gaps can also create project
risk (safety breaches) and delays. It is an area scrutinised by
international financial institutions and ECAs. Multilateral and
other funding can also be provided to give governments access to
suitable specialist resources. Finally, the development of standard
form bankable documentation by entities (as has been done
by IFC, KfW and the South African government) should help to
unblock bottlenecks caused by insufficient government capacity
duringnegotiations.
Assess country track record and adequacy of infrastructure and
(if no infrastructure) adequacy of funding for new infrastructure.
Build in upgrade requirements and ensure adequate contingency
for delays and patching works. Clear allocation of risk is needed
in relation to failures of infrastructure. Inadequate transmission
infrastructure may also favour off-grid solutions.
10 Renewable Energy in Africa. Trending rapidly towards cost-competitiveness with fossil fuels
Renewable energy doesnt necessarily
gowhere the most wind or sunshine is,
but where the best regulatory regime
is. InAfrica, you can have both.
Thomas Schulz, Partner, Berlin
African renewable power market size
It has taken time for domestic
transmission and consumer demand
for electricity in Africa to grow to a point
which is sufficient for large-scale power
investment and many African countries
are at or approaching that point today.
The renewables market in Africa is
growing rapidly and that rate of growth
in the medium to long term will, in part,
be driven by policy frameworks adopted
at a domestic level and supported
by ambitious signals from COP 21
negotiations and an international climate
agreement going forward. In 2014,
IEA reported a base case scenario (the
New Policies Scenario or NPS) that
projected that, between 2014 and 2030
cumulative investment would be US$827
billion in the power sector, of which
US$255 billion would be for renewable
energy capacity. A year later, in 2015,
one of IRENAs more ambitious renewable
energy deployment scenarios (RE-
MAP 2030) suggested that cumulative
investment between 2015 and 2030
would be US$1055 billion, of which
US$486 billion would be for renewable
energy capacity. In the high ambition
scenarios, more renewables are deployed,
but more power capacity is also built and
more power supplied. Total electricity
actually supplied by renewables in 2030
(in TWh) is projected to be between 20-
30% of total power generation depending
on the scenario, albeit that the absolute
value of both total generation and
renewable output is significantly higher in
the high ambition or RE-MAP scenario.
Transmission and distribution
requirements are different depending
onwhether there is a lot of renewable
energy in the mix. However, the IEA
and IRENA data, which the figures
below are based on, do not break
down transmission figures to a level of
detail to indicate whether it takes into
account these differences. Overall, the
costs associated with renewable energy
transmission and distribution appear
on balance to be fairly similar to fossil
fuels. A good deal of power demand
will be driven by industrial production
requirements and the increasing
demands of existing consumers (growing
middle class) rather than new low income
rural users, so the transmission and
distribution costs will not necessarily be
higher due to a need to set up linking
networks in rural areas, for example. n
 Linklaters 11

Transactions will continue and will become

moresophisticated. There will be aggregation
of smaller projects, portfolio sales similar
tothe evolution of the power sector weve
seeninEurope.
Sarosh Mewawalla, Partner, Dubai

Figure 3. Investment in African power sector (US$ billion)

IRENA REMAP 2030

(20152030)

IEA New Policies Scenario

(20142030)

0 200 400 600 800 1,000 1,200

Renewables Fossil fuels Transmission and distribution

Figure 4. Cumulative investment to 2030 by region (US$ billion)

North
West
IEA New Policy Scenario
Central
(20142030)
East
Southern

North
West
IRENA REMAP 2030
Central
(20152030)
East
Southern

0 100 200 300 400 500 600

Renewables Fossil fuels Transmission and distribution
12 Renewable Energy in Africa. Trending rapidly towards cost-competitiveness with fossil fuels
Impact of global climate
negotiations on the
Africanrenewables market
In the lead-up to COP 21, more
than 170 countries (including
European Member states),
accounting for at least 90% of
global emissions, submitted
national climate pledges (known as
Intended Nationally Determined
Contributions orINDCs) setting
out commitments on national
emissions reductionsstrategies.
If implemented, the INDCs will require
US$13.5 trillion investment in energy
efficiency and low-carbon technologies
from 2015 to 2030 globally. Some INDCs
are conditional upon receiving financial
support under a global climate agreement
which would come into force in 2020.
This downward trend in cost of
renewables could have a positive
impact on COP 21 negotiations in Paris
commencing in November 2015 and
beyond, as it is hoped ambition levels
will continue to ramp up. As renewable
energy becomes more affordable, analysts
have started to predict that some markets
in sub-Saharan Africa may leapfrog
fossil fuels technology supported by an
appropriate policy framework to enable
investment, and that Africas economic
development could actually be driven
by renewable technology23. The G77
negotiating bloc in global climate change
negotiations, which includes the African
States in most matters, has voiced
concerns in previous climate negotiations,
that an international climate deal
restricting global greenhouse emissions
could impede the speed of African
23
IEA Renewable Energy Medium-Term Market Report, 2015.
development through restrictions on the
use or access to finance of fossil fuels.
This concern should at least be partially
alleviated as the competitive environment
for clean energy has improved. The
downward trend of renewables costs
confirms that economic development
and low-carbon development goals are
not necessarily in conflict. This has
often been a highly contentious aspect
ofnegotiations.
It also means that as the trend of
decreasing renewable energy costs
continues, the level of subsidy
required by Africa from the negotiations
(in addition to existing development
assistance) decreases. This does not
ignore the fact that many countries in
Africa need development assistance
and support for adaptation to, and the
mitigation of the impacts of, climate
change which cannot be avoided.
However, as the cost of delivering
low-carbon development decreases
it may be easier for parties to reach
consensus (regardless of whether the
outcome of the international climate
negotiations is a legally binding
agreement) on financial support for
developing countries transition to low-
carbon economies andcommitments
by developing countries tosuch low-
carbondevelopment.

Negotiators at COP 21 and policy makers
have the opportunity to nudge the dial
on renewable energy through addressing
some of the barriers to renewable
energy generation in Africa and to favour
renewables as a significant proportion
of the overall energy mix. An ambitious
outcome in Paris which provides long-
term price signals will also help create a
virtuous cycle of unlocking investment
in renewables24. Consequently, the
outcome of COP 21 represents an
opportunity to achieve development
more rapidly than might otherwise have
happened rather than a risk to economic
development through restrictions on the
rapid deployment of fossil fuel technology.
International climate finance may also be
an important source of funding for the
accelerated deployment of renewable
energy in Africa, potentially through
the Green Climate Fund (GCF).
The GCF is a fund established to
channel public and private finances to
developing countries for climate change
adaptation and mitigation activities and
is the operating entity of the Financial
Mechanism of the UNFCCC. The GCF can
contribute financially to the deployment
of renewables in Africa and through the
multilaterals and national development
banks to mitigate some of the risks of
investment. Continued on p16
24
IEA Renewable Energy Medium-Term Market Report, 2015.
Linklaters 13
Case Study: South Africa
In 2013, South Africa implemented
the Renewable Energy Independent
Power Producer Procurement (REIPPP)
programme25, which made the country a
highly favourable market for renewable
energy investment. Fivebidding windows
have now closed (one remains) with a
total of nearly 7 GW of capacity set to
be installed before 2020. As of March
2015, 4.1GW had been procured from
66IPP projects through a competitive
bid process and 1.7 GW was already
operational. Furthermore, the number
of qualifying and competitive bids in
Round 2 onwards exceeded the available
allocation or cap that could be procured.
This suggests that if more RE capacity
could be accommodated on the system,
the supply is available. Linklaters and
Webber Wentzel advised on over 30
projects in the program, including in
relation to the financing of two of the
largest Concentrated Solar Power projects
in Africa: Khi 50MW Concentrated Solar
Power (CSP) Project in Upington and the
KaXu 100MW concentrated solar power
(CSP) plant constructed near Pofadder, in
the Northern Cape Province, South Africa.
Much of the success of the REIPP
programme derives from the
standardisation of approach a carefully
considered risk allocation in the
programme documentation enshrined
in non-negotiable power purchase and
associated documentation has allowed
the programme to be rolled out on an
industrial scale. n
25
 n which Linklaters and Webber Wentzel advised
O
the South African government.
14 Renewable Energy in Africa. Trending rapidly towards cost-competitiveness with fossil fuels
The South African renewables programme has
attracted investors from all over the world.
Theseinternational players know Africa now
muchbetter than five yearsago.
Karel Potgieter, Partner, Webber Wentzel
Which renewable energy sources have greater potential indifferent regions of Africa?
The opportunities for continued
renewable deployment in Africa are very
strong due to the abundance of natural
renewable energy resource in multiple
regions of Africa and the degree of unmet
and growing demand. Certain power
sources will be more competitive by
region, thereby resulting in more installed
capacity, as set out in Figure 5. Resource
abundance generally lowers LCOE, which
then in some cases (like Morocco and
South Africa) has led to the development
of a favourable policy environment,
institutional capacity building and
local deployment and implementation
experience that further drives down costs.
By Region:
Central Africas potential hydro
capacity. The hydro capacity that could
technically be exploited is the highest
in Central Africa among the regions,
although political risk continues to
restrict international investment. As of
2012, hydropower provided about 96%
of Africas renewable energy capacity;
however, forecasts show a diversification
away from this and hydropower is
expected to represent between 25 and
55% of generation by 2030, depending
on whether a low or high ambition
scenario is adopted.
Significant scope for solar across the
regions. While almost all of Africa has
double the days of sunlight and levels of
solar irradiance as Germany (the world
leader in installed solar as of 2014),
the resource is most abundant in North
Africa, Southern Africa and across the
Sahara. Numerous solar PV projects
involve international investment. Since the
beginning of 2014, SkyPower has signed
agreements for solar PV installations of
3GW with Nigeria (US$5 billion), 1 GW
with Kenya (US$2.2 billion) and 200 MW
Djibouti (US$440 million). Linklaters is
also advising Neoen on the development
of its 30 MW solar photovoltaic plant in
Mozambique, one of two major projects
ofits kind in the country.
Medium- and high-quality wind
resources exist across most of North
Africa. Areas around the Horn of Africa,
eastern Kenya and areas of West and
Central Africa that border the Sahara also
have good options. Recent developments
suggest that wind power, previously
concentrated on Morocco and South
Africa, may be on the rise in other
parts of sub-Saharan Africa. The first
industrial-scale wind project in Senegal
has been signed, with over US$300m
in investment in what will be 150MW of
capacity supplying a 20-year PPA. In May
2015, Ethiopia opened its third wind farm,
Adama II, the largest in sub-Saharan
Africa, at 153 MW capacity. It brought
the countrys installed wind capacity to
324 MW. In Kenya, construction has
begun on the first 50-90 MW of the Lake
Turkana Wind Power Station. When
complete, it will also have a capacity of
300 MW26. Linklaters advised the African
Development Bank (AfDB) and European
Investment Bank on the Financing of
Cabolica wind farm portfolio in Cape
Verde, South Africa.
Substantial geothermal resources
existinthe Rift Valley in East Africa.
26
AFP, 2015; Davis Jr., 2015.
 Linklaters 15

The Mozambique Government is becoming more and

more aware of the requirements of international
investors in the electricity sector and sensitive
to the need to give protection versus political
andcountry risk.
Francisco Ferraz de Carvalho, Partner, Lisbon

Figure 5. Installed capacity by region

North Biomass

Hydro
West
Solar PV

Central CSP

Wind
East
Geothermal
Southern
Small Hydro

Total Dist. Solar PV

20 40 60 80 100 120 140 160 180 200 220 240 260

Installed capacity (GW)

These figures are interpreted by ODI from IRENA (2015) Africa 2030: Roadmap for a renewable energy future Abu Dhabi: International Renewable Energy Agency (IRENA).

Regional co-operation It is also worth noting that some large- ofamarket in Central Africa that is
The need for increased regional scale projects and interconnection could capable of absorbing the levels of
integration and co-operation in order substantially change how the African electricity produced. Its implementation is
to develop many renewable energy power sector develops. For example, if also largely contingent on the expansion
resources compounds political and the planned 4.8 GW Inga III project in of transmission and distribution
regulatory risks, because state utilities are DRC and the widely discussed ~44 GW infrastructure to unlock electricity trade.
hesitant to become reliant on imports to Grand Inga project come online, the The uncertainty surrounding such a large
meet their domestic needs27. To mitigate electricity produced could displace fossil project illustrates the problems involved in
these risks and improve the enabling fuels and renewable energy in Central, modelling future energy scenarios. n
environment for RE, infrastructure West and Southern Africa. Barriers to the
planning must be carried out at the development of the Grand Inga project
regional level. The ongoing construction include political instability in the region,
of the West African Power Transmission securing the regional governments and
Corridor and plans to develop an Africa stakeholders consensus, complexities
Clean Energy Corridor from Egypt to surrounding the scale of upfront costs
South Africa are promising steps in and financing capacity, the need for
theright direction. associated infrastructure and the lack

27
IEA, 2014; APP, 2015
16 Renewable Energy in Africa. Trending rapidly towards cost-competitiveness with fossil fuels
Conclusion
The investment case for renewable
energy in Africa is becoming easier
for policy makers, investors and
financiers to make, as the cost of
renewables trends towards cost-
competitiveness with fossil fuels
and even cost parity in certain
asset classes.
As renewables quickly approach cost parity
with fossil fuels, we are seeing signs that
African economic development canbe powered
byrenewables.
Melanie Shanker, Managing Associate, London
The probability of a supportive global
agreement in Paris is improved by
this trend as the overall price tag on
low carbon development continues
to decrease. From the perspective of
developed countries, it arguably reduces
the size of required financial assistance.
From the perspective of African states,
it gives some comfort that the outcome
of COP 21 represents an opportunity
to achieve economic development
more rapidly than might otherwise
have happened rather than it being a
risk to economic development through
restrictions on the rapid deployment of
fossil fuel technology.
However, there are still barriers to
investment in place which must be
overcome to truly unlock international
investment in renewables. A strong,
ambitious outcome from COP 21 will
also give investors the long-term pricing
signals required to enable large-scale
investment in required renewables
inAfrica. n
 Linklaters 17

About Linklaters

For over 40 years, Linklaters has

Tier 1: Africa-wide
been at the forefront of helping Legal 500 EMEA 2015
clients do business across Africa.
Band 1: Africa Corporate/
Through our unique combination of Commercial
skills and experience in Anglophone,
Francophone and Lusophone Africa,
Band 1: Africa Projects
and our UK, U.S. and Islamic Finance andEnergy
capabilities, together with a deep-rooted Band 1: Africa Mining
alliance with Webber Wentzel in South andMinerals
Africa, we offer clients across all sectors Chambers Global 20102015
an unrivalled legal offering to support their
Africa-related work.
Tier 1: Emerging Markets
Linklaters also has a specialist group of Legal 500 UK 20102015
climate change lawyers, based around
our international network, which advises Africa Solar Power Deal
businesses on all their climate change
related legal requirements. Clients come
oftheYear:
to us for strategic risk management advice Khi Solar Power Project
in relation to sustainable investment, Project Finanace Magazine Awards 2012
advisory guidance covering policy
developments, low-carbon investment Band 1: Environment
and green bonds. n Chambers UK 20092016

Band 1: Climate Change

Chambers UK 20152016

Band 2: Climate Change

Chambers Global 20092016

460
Over 460 qualified
lawyers with Africa
200
experience from across Over 200 live
21 of our offices matters in Africa

50
Experience
in 50 African
jurisdictions
18 Renewable Energy in Africa. Trending rapidly towards cost-competitiveness with fossil fuels

Contacts

UK UK
Melanie Shanker Andrew Jones
Managing Associate, London Partner, London
Tel: (+44) 20 7456 2994 Tel: (+44) 20 7456 5892
melanie.shanker@linklaters.com andrew.jones@linklaters.com

UK UK
Vanessa Havard-Williams Jeremy Gewirtz
Partner, London Partner, London
Tel: (+44) 20 7456 4280 Tel: (+44) 20 7456 5900
vanessa.havard-williams@linklaters.com jeremy.gewirtz@linklaters.com

UK UK
Chris Staples John Pickett
Partner, London Partner, London
Tel: (+44) 20 7456 4876 Tel: (+44) 20 7456 5926
chris.staples@linklaters.com john.pickett@linklaters.com

France France
Paul Lignires Bertrand Andriani
Partner, Paris Partner, Paris
Tel: (+33) 1 56 43 57 01 Tel: (+33) 1 56 43 57 80
paul.lignieres@linklaters.com bertrand.andriani@linklaters.com

Portugal Dubai
Francisco Ferraz de Carvalho Sarosh Mewawalla
Partner, Lisbon Partner, Dubai
Tel: +35 121 864 0010 5010 Tel: (+97) 1 4369 5843
francisco.carvalho@linklaters.com sarosh.mewawala@linklaters.com

Germany Webber Wentzel

Thomas Schulz Karel Potgieter
Partner, Berlin Partner, Webber Wentzel
Tel: (+49) 30 2149 6238 Tel: (+27) 11 530 5315
thomas.schulz@linklaters.com karel.potgieter@webberwentzel.com
Designed by gmtoucari.com
linklaters.com
This publication is intended merely to highlight issues and not to be comprehensive, nor to
provide legal advice. Should you have any questions on issues reported here or on other areas
of law, pleasecontact one of your regular contacts, or contact the editors.
Linklaters LLP. All Rights reserved 2015
Linklaters LLP is a limited liability partnership registered in England and Wales with registered
number OC326345. It is a law firm authorised and regulated by the Solicitors Regulation Authority.
Theterm partner in relation to Linklaters LLP is used to refer to a member of Linklaters LLP or
an employee or consultant of Linklaters LLP or any of its affiliated firms or entities with equivalent
standing and qualifications. A list of the names of the members of Linklaters LLP together with
a list of those non-members who are designated as partners and their professional qualifications
isopentoinspection at its registered office, One Silk Street, London EC2Y 8HQ or on
7407_F/12.15
www.linklaters.com and such persons are either solicitors, registered foreign lawyers or
European lawyers.
Please refer to www.linklaters.com/regulation for important information on our regulatory position.